Sentiment among financial services recovered to +10% from -55% in the three months to December, despite gloomy expectations for activity in the quarter ahead, according to the latest CBI/PwC Financial Services Survey.
The quarterly survey found that business volumes grew at a solid rate in the quarter to December (+24% from +31% in September). Employment growth recovered to a firm pace (+23% from -8% in September), while profitability was flat (-1% from +24% in September).
Looking ahead to the next three months, FS firms expect business volumes (-28%) and profitability (-26%) to decline. Headcount is anticipated to be unchanged.
The outlook for investment over the next year is mixed. While IT investment is set to grow over the next 12 months (compared to the previous 12), capital expenditures on land & buildings and vehicles, plant & machinery are anticipated to decline.
Uncertainty about demand was the key factor weighing on investment intentions in the year ahead (34% of firms from 17% in September).
Over 2023, the key trends driving disruption for firms are expected to be changes in regulation (85% of firms), high inflation (79%), and accelerations in digital technologies (70%). With the cost-of-living crisis spilling into the new year, the survey found that over two-thirds (70%) of financial service firms have initiatives to support consumer and/or commercial clients with inflation.
Rain Newton-Smith, CBI Chief Economist, said: “It’s good to see optimism return to financial services in Q4. Unfortunately, this may prove to be short-lived as FS firms’ predictions look bleaker going forward, with business volumes and profitability set to fall over the next quarter.
“All eyes are now on the upcoming Spring Budget to see if the Chancellor can build on the stability provided by the Autumn Statement and deliver a concrete plan for growth.
“A fit and firing financial services sector is vital to the UK’s long-term economic success – that’s why we need business and government working together to safeguard the industry’s global competitiveness.”
